Investor Sustainability Sentiment Soars Despite Financial Constraints
Wednesday, 14 April 2010
According to the latest market survey by leading property consultant GVA Grimley, the past 18 months has seen a significant increase in investors ensuring their property portfolios are greener.
Investors also maintain that as the sustainability agenda and its regulations mature, sustainable property will in turn generate greater value.
The 'From Green to Gold 2010 - Key Findings' research surveys the leading UK investors' attitudes towards sustainable commercial property investment. In the 18 months that have passed since GVA Grimley's last survey in 2008, the UK has experienced its worst recession since World War II.
53% of investors stated that the majority of the properties in their portfolios had been individually assessed against sustainability criteria, more than double the proportion achieved in 2008. Of those that had not, a further 19% claimed they intended to do so in the next 12 months.
42% of investors stated that they explicitly allow for sustainability in investment appraisals, a major increase from 25% in 2008. However, the vast majority (89%) stated that valuers did not adequately reflect sustainability issues in their reports.
Richard Walsh, head of investment at GVA Grimley's Leeds office, explains: "Bearing in mind the challenges investors have faced over the period since our last survey, it is highly encouraging to see the vast majority of investors not only still consider sustainability to be an important issue, but continue to drive it as an integral part of generating investment value in the future.
"The challenge for Leeds and indeed other major cities is that over the past few years speculative development has taken a back seat due to major financial constraints, therefore the majority of office stock in Leeds is second-hand where the environment was not a major consideration in years gone by. However, Leeds City Centre is currently able to offer three BREEAM Excellent rated buildings and interestingly, the Icon Building at Thorpe Park, on the outskirts of Leeds, does offer the highest ever BREEAM rated commercial building in the UK, with a staggering BREEAM score of 87.55 per cent."
The three BREEAM Excellent rated office schemes in Leeds include BAM's Latitude Red (123,561 sq ft), Highcross' Toronto Square (82,649 sq ft) and Town Centre Securities' Town Centre House (25,735 sq ft).
When measuring the importance of sustainability issues in property sales, 46% of investors stated they were of some importance, 33% (an increase of 9% on 2008) said they were of equal importance with other issues, and 19% felt they were of no importance. 2% felt sustainability was of over-riding importance.
On the purchasing side, 55% of respondents stated they were of some importance, 25% thought they were of equal importance with other issues (a fall from 39% in 2008) and 16% felt sustainability was of no importance (a 10% rise). 4% considered it of over-riding importance when acquiring property assets.
Walsh continues: "While over 80% of those questioned gave importance of varying degrees to sustainability when trading property, market conditions have undoubtedly left their mark. The 10% rise in sustainability being seen as having no importance when buying property is likely to be attributed to investors focusing on maintaining a healthy bottom line during what has been an unprecedented recessionary period. It also appears there remains a lack of interest in creating so-called 'green portfolios'."
Asked how sustainable the properties within investment portfolio's were, on a scale of one to five (five being the highest rating), 51% gave their portfolios a rating of three, 23% gave a rating of four (an increase of 17% on 2008), and, for the first time in the survey a rating of five was given by 4% of investors. 12% gave a rating of two and 11% a rating of one (an increase of 5% on 2008). The average sustainability rating of UK property investment portfolios has risen from 2.6 in 2008 to 3.0 in 2010.
Walsh concludes: "Individual investor perceptions of what constitutes a green building inevitably vary so this part of the survey is open to subjectivity. It is interesting to note however that there have been increases at both ends of the spectrum. It could be argued that opinions have become more polarised as to what is now considered 'sustainable', or, this split could signify the emergence of a two-tier market."
60% of investors felt that a high BREEM rating was an important criterion when assessing a building for purchase, a change not much greater than previous years, surveys: 2008, 52%; 2007, 54%.
86% of investors stated that they did not measure the investment performance of green buildings compared with non-green buildings. Of those that did not however, 71% did say they intended on doing so in the future.
Asked how sustainability was likely to affect property performance, respondents observed that it would have the greatest affect on obsolescence. Tenant retention was placed second, while other factors such as voids, rent levels, yield levels and rental growth received lower recognition. However GVA Grimley believes there is still little evidence as to how sustainability is likely to affect property performance.
Similar to 2008, investors felt that city centre offices and business parks would feel the greatest impact from sustainability issues.
GVA Grimley Ltd
GVA Grimley Ltd is one of the UK's leading firms of property consultants operating from 12 offices with 890 fee earners generating a turnover of £137.3 million year ending 30th April 2009.
The firm provides a full range of property-related services including agency, planning and regeneration, rating, building consultancy, investment, management and valuation consultancy. GVA Grimley also offers specialist advice in areas such as telecomms, education, healthcare, retail, contamination, plant and machinery and the automotive and roadside sectors.
GVA Grimley is a founding member of GVA Worldwide, an international organisation of real estate industry leaders serving key markets in over 25 countries. The organisation is comprised of more than 2,500 real estate professionals in over 85 markets worldwide.
A leading advisor in commercial real estate, GVA Worldwide optimises client portfolios locally and around the world. It serves the real estate needs of clients including multinational corporations, major space users, developers, owners, institutions, lenders and investors. For more information, visit http://www.gvaworldwide.com/